The Minefield of State Insurance Exchanges
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Now that HHS has released all of their guidance concerning essential health benefits, the minimum benefits that insurance plans must offer to be sold in the state, nine states have received approval for their benefits package (out of 19 that have said they will build their own exchanges). Looking only at the nine approved so far, it becomes apparent that insurance will be no more affordable in most states than it was pre-Obamacare (one of the main goals of setting up health insurance exchanges is to offer consumers more choice among insurers). In fact, it is likely to be more expensive, and no more accessible than before.

State-Level Insurance Mandates

 

Previous Mandates

Proposed Mandates Under 
New Benchmark Plan

New York

61

65

Colorado

58

63

District of Columbia

27

55

Washington

58

64

Kentucky

47

56

Maryland

67

73

Massachusetts

48

41

Oregon

44

56

Connecticut

63

39

Source: "Previous Mandates" from the Council on Affordable Health Insurance's 2011 report; "New Mandates" from National Conference of State Legislatures.

Under the law's essential health benefit requirements, HHS defines the categories of benefits, while states determine the specifics by selecting a benchmark plan for minimum coverage. For the most part, states have taken to choosing plans with more generous coverage than their previous requirements mandated, with D.C. making the biggest jump. Some, like Connecticut however, have actually reduced the number of total mandates, but at the same time have imposed requirements on insurers to commit to at least two years of participating in the exchange (note: D.C. has done the opposite, and has said that they will allow any insurer  that covers the minimum federal EHB to participate).  Thus far, as my colleague Avik Roy has noted, one large insurer has only committed to participating in a little more than a dozen exchanges; another only in ten. Fewer insurers means less competition, which means higher prices for consumers.

The market-influenced approach of health insurance exchanges is surely one of Obamacare's bright spots - if nothing else, a properly implemented exchange allows the individual to know exactly what kind of insurance policy they're purchasing , how much it costs, and what it covers. It encourages consumers to shop around for value, and encourages insurers to compete for people's business.

This isn't the approach that the ACA encourages, however.  Richer plans require higher premiums, which will in turn discourage young and healthy people from buying coverage, especially when they can pay a small penalty and buy the same coverage later if they become sick.

Given what we know about the approved exchanges to date (which, to be fair, isn't much), there isn't much reason to think that they will encourage robust competition. Increased state-level mandates and other requirements are likely to cancel out any potential for increased competition amongst insurers.

So what are we left with? For insurers, this is a new minefield of regulations to navigate. Insurers will likely avoid those exchanges with more mandates, and onerous rules and regulations. For consumers and taxpayers, this leads to fewer options to choose from and higher premiums.  A more flexible exchange format, encouraging more competition among insurers (Utah's clearinghouse model for instance has contracted to sell 140 plans already) and more choice for consumers, would be a far superior approach.

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